THE 


TAXATION  OF  MINERAL  PROPERTIES 

BY 

FRANK  L.  McVEY 

CHAIRMAN  OF  THE  MINNESOTA  TAX  COMMISSION 
ST.  PAUL,  MINN. 


Reprinted  from  the  Addresses  and  Proceedings  of  the 
International  Conference  on  State  and  Local 
Taxation  held  at  Toronto,  Canada 
Oct.  6-9,  1908 


INTERNATIONAL  TAX  ASSOCIATION 
COLUMBUS 


THE 


TAXATION  OF  MINERAL  PROPERTIES 


BY 

FRANK  L.  McVEY 

CHAIRMAN  OF  THE  MINNESOTA  TAX  COMMISSION 
ST.  PAUL,  MINN. 


Reprinted  from  the  Addresses  and  Proceedings  of  the 
International  Conference  on  State  and  Local 
Taxation  held  at  Toronto,  Canada 
Oct.  6-9,  1908 


INTERNATIONAL  TAX  ASSOCIATION 
COLUMBUS 


\\%£- 


Digitized  by  the  Internet  Archive 
in  2017  with  funding  from 

University  of  Illinois  Urbana-Champaign  Alternates 


https://archive.org/details/taxationofminera00mcve_0 


5" 


cv 

THE  TAXATION  OF  MINERAL  PROPERTIES 


By  Frank  L.  McVey 

Chairman  of  the  Minnesota  Tax  Commission,  St.  Paul,  Minn. 


An  examination  of  the  reports  of  taxing  officers  and  the  as- 
sessment laws  of  the  different  States  shows  that  little  attention 
has  been  given  to  the  taxation  of  mineral  lands  in  the  United 
States.  Here  and  there  some  differentiation  has  been  made 
from  the  principles  of  the  general  property  tax,  but  in  the  main 
the  same  system  of  taxation  applies  to  mineral  properties  as  to 
houses  and  lots  and  agricultural  lands.  In  this  paper  it  is  pro- 
posed to  present  briefly  the  methods  used  in  a number  of  the 
States  and  foreign  countries,  and  to  show  in  such  detail  as  the 
time  permits  the  system  of  taxation  developed  in  Minnesota 
during  the  last  two  years  for  the  assessment  of  mineral  proper- 
ties. 

I 


The  methods  adopted  by  the  taxing  authorities  in  securing 
revenue  from  mineral  properties  vary  from  the  simplest  form 
of  the  general  property  tax,  where  the  assessor  makes  the  valua- 
( tion  on  what  he  sees  in  the  form  of  improvements  and  on  what 
he  guesses  there  is  in  the  ground,  to  a tonnage  tax,  or  a combina- 
tion of  a gross  receipts  tax  and  the  general  property  tax.  For 
purposes  of  classification  the  taxation  of  minerals  as  now  car- 
ried on  may  be  grouped  under,  (1)  the  general  property  tax, 
(2)  the  annual  output  tax,  (3)  the  general  property  and  gross 
earnings  tax,  (4)  the  general  property  and  net  earnings  tax, 
(5)  the  tax  on  royalties,  and  (6)  the  tonnage  tax.  These  will 
be  taken  up  in  the  order  just  enumerated. 

1.  General  Property  Tax 

Alabama.  — All  the  real  and  personal  property  of  mines  and 
quarries,  and  the  machinery,  engines  and  appliances  belonging 

411 


p 23435 


412 


STATE  AND  LOCAL  TAXATION 


to  the  same,  are  taxable  on  the  basis  of  their  full  value.  In  addi- 
tion the  mining  corporations  pay  a tax  on  the  shares  of  stock 
belonging  to  stockholders  of  residence  in  the  State.1 

California.  — The  term  “real  estate”  in  the  California  law 
includes  all  mines,  minerals  and  quarries  in  and  under  the  land, 
and  all  rights  and  privileges  appertaining  thereto.  The  assess- 
ment is  made  by  the  assessor  at  the  cash  value  of  the  proper- 
ties.2 

Michigan.  — In  Michigan  the  assessment  of  mining  property 
is  made  on  the  same  basis  as  other  property.  The  assessor  is 
instructed  to  take  into  consideration  in  fixing  values  the  worth 
of  mines,  minerals,  quarries  or  other  valuable  deposits  known 
to  be  therein  contained.3 

Minnesota.  — No  distinction  under  the  Minnesota  law  is 
made  between  mining  property  and  other  real  and  personal 
property.4  The  ad  valorem  assessment  is  made  at  about  40 
per  cent  of  full  value. 

Ohio.  — While  the  Ohio  law  provides  for  the  taxation  of 
mineral  properties  in  the  same  manner  as  other  property,  it 
nevertheless  in  case  of  difference  in  the  ownership  of  the  fee  in 
the  surface  and  of  the  mineral  rights  gives  the  county  boards  of 
equalization  authority  to  value  the  holdings  equitably  accord- 
ing to  the  relative  values  of  the  holdings  of  the  respective 
owners.5 

Tennessee.  — Mineral  lands  and  interests  therein  are  assessed 
to  the  owners  thereof  as  real  estate.6 

West  Virginia.  — The  assessment  is  made  against  the  prop- 
erty at  its  actual  value  by  the  local  assessor.  Where  there  is  a 
division  of  ownership  each  owner  is  assessed  for  the  value  of  his 
property.7 

Other  States.  — To  the  States  enumerated  specifically  as  using 
the  general  property  tax  in  securing  revenue  from  mineral  prop- 
erties may  be  added  those  of  Georgia,  Missouri,  Nebraska,  New 

1 Alabama  Revenue  Code,  1908,  § 2082,  subitems  1 and  9,  § 2112. 

2 Revenue  Laws  of  California,  1907,  § 3617,  subitem  2. 

3 Michigan  General  Tax  Laws,  1907,  § 27. 

4 Minnesota  Revised  Laws  of  1905,  Ch.  11,  §§  796  and  810. 

6 Ohio  Statutes,  1906,  Vol.  I,  §§  2730  and  2792  a. 

6 Tennessee  Tax  Digest,  1907,  p.  119. 

7 West  Virginia  Assessment  Laws,  1907,  §§  12  and  39. 


THE  TAXATION  OF  MINERAL  PROPERTIES  413 


Hampshire,  North  Carolina,  North  and  South  Dakota,  Texas, 
Virginia,  Washington  and  the  territory  of  New  Mexico. 

2.  Annual  Output  Tax 

This  tax  is  to  be  distinguished  from  the  tonnage  tax  in  that  it 
falls  upon  the  value  of  the  annual  output  rather  than  upon  the 
number  of  tons  mined.  In  the  instances  where  used  the  tax  is 
levied  upon  some  proportion  of  the  annual  value  of  output, 
though  either  the  gross  receipts  or  the  net  receipts  may  be  used 
as  the  basis  of  determining  the  tax.  The  first  method,  while 
easy  of  application,  results  in  inequalities  almost  as  glaring  as 
those  of  the  general  property  tax ; the  second  necessitates  in- 
spection and  regulation  of  accounts. 

Arizona.  — Prior  to  1907  the  mineral  properties  of  this  terri- 
tory were  taxed  on  their  general  property,  just  as  other  property 
was  taxed.  The  assessments  were  often  low  and  out  of  all  pro- 
portion to  values,  which  at  times  bore  heavily  upon  the  small 
holder  while  practically  relieving  the  large  owners  from  taxa- 
tion. The  territorial  legislature  in  1907  passed  an  act  dividing 
mineral  properties  into  two  classes,  (1)  productive  mines  and 
mining  claims,  (2)  non-productive  mines  and  mining  claims. 
The  value  of  output  in  excess  of  $3750  placed  property  in  the 
first  class  and  subjected  it  to  a tax  on  the  basis  of  an  assessment 
equal  to  one  fourth  of  the  previous  annual  output.  The  second- 
class  properties  were  subjected  to  the  general  property  tax  as 
other  property.  Non-productive  unpatented  mines  were  wholly 
exempt.  The  tax  on  output  did  not  relieve  the  owners  of  min- 
ing machinery  from  the  usual  personal  property  tax.  The 
application  of  the  new  law  to  the  valuations  of  mineral  property 
brought  the  assessment  to  $20,904,201  as  against  $57,000,000 
(in  round  numbers)  for  all  other  property  in  the  territory.1 

Nevada.  — The  Nevada  law  provides  for  quarterly  assess- 
ment upon  the  gross  value  of  the  returns  of  the  preceding 
quarter.  From  these  the  actual  cost  of  extracting,  transport- 
ing, reducing  and  selling  are  deducted,  and  the  remainder,  called 
the  net  proceeds,  is  then  assessed  at  the  same  rate  as  other  prop- 
erty. Careful  provision  is  made  for  accurate  and  available  ac- 

1 Report  of  the  Governor  of  Arizona,  1907,  pp.  30-36. 


414 


STATE  AND  LOCAL  TAXATION 


counting.  The  books  of  the  companies  are  open  to  the  assessor, 
who  is  given  great  powers  in  making  assessments.1 

British  Columbia.  — The  British  Columbia  law  states  clearly 
— and  the  reason  the  matter  is  referred  to  here  is  because  of 
the  absence  of  such  a clause  from  most  of  the  legislation  — that 
mines  and  minerals  shall,  for  purposes  of  taxation,  be  regarded 
as  a separate  class  of  property.  Mines  were  taxed  in  this  Prov- 
ince up  to  1893  on  the  basis  of  the  value  of  the  gross  output  less 
the  cost  of  transportation  and  treatment  of  the  ores.  Complaint 
had  been  made  against  this  method  on  the  ground  of  inequality 
between  mines  due  to  great  differences  in  the  cost  of  mining. 
The  view  was  presented  that  if  the  law  were  so  modified  as  to 
include  the  cost  of  mining  as  a factor,  and  such  cost  deducted 
from  the  value  of  the  gross  output,  the  mining  interest  would 
regard  the  act  with  favor.2  In  1903  the  law  was  changed  to 
a straight  2 per  cent  on  the  assessed  value  of  all  ore  or  mineral- 
bearing substance  raised  to  a value  of  $5000  or  more  and  which 
had  been  sold  or  removed  from  the  premises.  For  small  mines 
yielding  less  than  $5000  and  more  than  $2000  in  one  year,  the 
tax  was  cut  in  two,  and  for  properties  producing  less  than  the 
last-named  figure  the  tax  was  remitted  and  the  assessment  made 
on  the  basis  of  other  real  estate.3 

Mexico.  — Under  the  Mexican  law  no  ownership  of  fees  by 
individuals  is  permitted.  All  mining  land  is  owned  by  the  gov- 
ernment. The  government  sells  the  right  to  use  the  ground, 
for  which  a payment  of  $10  a year  is  made.  A tax  is  also  laid 
on  the  output  and  in  case  it  is  not  paid  the  claim  reverts  to  the 
government.4 

Ontario.  — The  province  of  Ontario  has  carried  this  form  of 
tax  to  its  logical  conclusion.  Under  its  law  every  mine  whose 
annual  profits  are  more  than  $10,000  shall  pay  on  the  excess 
over  $10,000  an  annual  tax  of  3 per  cent.  From  the  gross 
receipts  are  deducted  the  cost  of  transportation,  expenses  of 
working  the  mine  — including  wages,  explosives,  protection, 

1 Nevada  Compiled  Laws,  1900,  §§  1147-1170. 

2 Report  of  Surveyor  of  Taxes  and  Inspector  of  Revenues  of  the  Province 
of  British  Columbia,  1902,  p.  14. 

3 Extracts  from  Assessment  Acts  of  British  Columbia,  1907,  Revised  Statutes, 
Ch.  179,  §§  9-11,  14,  17. 

4 U.  S.  Industrial  Com.  Report,  Vol.  XII,  237-238. 


THE  TAXATION  OF  MINERAL  PROPERTIES  415 


insurance,  depreciation  — and  cost  of  new  work  in  sinking 
shafts.  The  law  also  requires  the  making  of  full  reports  to  the 
mining  department  of  the  Province.1 

3.  General  Property  and  Gross  Earnings  Tax 

Colorado.  — The  taxation  of  minerals  in  Colorado  is  carried 
on  in  two  ways,  one  as  applied  to  the  precious  minerals  and  the 
other  as  it  relates  to  iron,  coal  and  stone. 

The  method  of  taxing  the  precious  metals  is  a combination 
of  the  personal  property  tax  and  an  assessment  against  the  mines 
on  a proportion  of  the  ore  output.  Non-producing  mines  are 
to  be  assessed  at  their  value,  due  regard  being  given  to  location 
and  other  conditions,  but  upon  this  provision  is  the  restriction 
that  they  are  not  to  be  assessed  at  a greater  sum  per  acre  than 
is  used  against  the  lowest  producing  mine  in  the  same  locality. 
On  the  other  hand  the  owners  of  producing  mines  are  required 
to  make  a statement  in  January  of  each  year  which  will  show 
the  name  of  mine,  owner,  number  of  acres  owned,  tonnage  of 
ore  taken  out  previous  year,  the  gross  value  of  it,  cost  of  mining, 
cost  of  transportation  and  the  net  proceeds.  The  assessor  is 
required  to  take  one  fourth  of  the  gross  proceeds  as  the  assess- 
ment against  the  company,  except  in  such  instances  as  the  net 
proceeds  exceed  the  one  fourth  of  the  gross  returns  in  money. 
In  such  case  the  net  proceeds  are  to  be  used  as  the  basis  of  the 
assessment.  The  surface  improvements  and  machinery  are 
assessed  at  their  full  value. 

The  iron  and  coal  mines  are  assessed  and  taxed  as  other  prop- 
erty according  to  the  value  thereof.2 

South  Carolina.  — In  cases  where  properties  are  actually 
mined,  in  lieu  of  all  other  taxes  the  gross  proceeds  from  such 
properties  are  assessed  and  taxed.  All  personal  property  used 
in  connection  with  mining,  and  all  land  not  actually  mined  con- 
nected with  mines  and  mining  claims,  are  taxed  as  in  the  case 
of  all  other  personal  property  and  real  estate.3 

1 Ch.  9,  7 Edw.  VII. 

2 Le  Rossignol,  “ Taxation  in  Colorado, ” Ch.  VII;  U.  S.  Industrial  Com. 
Report,  Vol.  XII,  pp.  540,  541 ; Colorado  Annotated  Statutes,  1901-1905| 
§§  3882,  3884,  3886,  3890. 

3 South  Carolina  Code,  1902,  Vol.  I,  § 275. 


416 


STATE  AND  LOCAL  TAXATION 


4.  General  Property  and  Net  Earnings  Tax 

Utah.  — The  Utah  method  of  valuing  mineral  properties  is : 
first,  to  value  the  ground  as  agricultural  land,  if  used  as  such, 
but  in  other  instances  at  the  price  paid  the  United  States  for  the 
land;  second,  to  value  improvements  and  personal  property; 
and,  third,  to  levy  a tax  upon  the  net  earnings  of  the  company. 
The  State  Board  of  Equalization1  is  called  upon  to  make  the 
assessment  against  the  mines  upon  the  return  of  information 
furnished  by  the  companies.2 

Montana.  — The  Montana  law  is  practically  the  same  as  the 
Utah  law.  The  statutory  definition  of  real  estate  includes  “ all 
mines,  minerals  and  quarries  in  and  under  the  land.”  Mines 
and  mining  claims  are  assessed  at  the  original  price  paid  to  the 
United  States  for  the  land.  Surface  use  is  assessed  separately, 
as  are  also  the  machinery  and  all  surface  improvements.  In 
addition  the  annual  net  proceeds  are  taxed  as  other  personal 
property.3 

5.  Tax  on  Royalties 

Great  Britain.  — The  general  custom  of  levying  taxes  on  the 
basis  of  receipts  earned  by  a property  is  extended  to  mines  and 
the  tax  laid  on  the  royalties  received  for  operating  the  mine.4 

6.  Tonnage  Tax 

Michigan.  — Up  to  1891  the  Michigan  law  taxed  mines  on 
the  basis  of  the  tonnage  output  regardless  of  differences  in  value, 
cost  of  mining  or  difficulties  of  transportation.  The  tax  laid 
was  1 cent  per  ton  on  iron  ore  mined,  \ cent  on  coal,  and  75  cents 
per  ton  on  copper  if  smelted  in  the  State  or  $1  per  ton  if 
shipped  outside.  In  the  five  years  the  law  was  in  effect  the 
amount  collected  was  $234,198.14  from  the  iron  properties  and 
$152,791.47  from  the  copper  mines.  The  payment  of  the  ton- 
nage tax  did  not  relieve  physical  properties,  real  and  personal, 
from  local  taxation.5 

1 Title  67,  Revised  Statutes  of  Utah  on  Revenue  and  Taxation,  Ch.  1. 

2 Ibid.,  Ch.  3,  §§  2566-2570. 

3 Montana  Political  Code,  1895,  §§  3672,  3680. 

4 Blunden,  “Taxation  and  Finance,”  Ch.  V. 

6 Report  of  Michigan  Tax  Commissioners,  1900,  p.  58. 


THE  TAXATION  OF  MINERAL  PROPERTIES  417 


Minnesota.  — In  1881  the  legislature  passed  the  tonnage  tax 
of  1 cent  on  each  ton  of  ore  mined.  This  tax  was  in  lieu  of  all 
other  taxes  and  was  to  be  distributed,  one  half  to  the  State,  and 
the  other  half  to  the  counties  in  which  the  mines  were  located. 
It  was  optional  with  the  companies.  For  many  years  the  law 
remained  in  force,  but  in  1896  the  State  auditor  raised  the  ques- 
tion of  the  constitutionality  of  the  law  and  the  attorney-general 
rendered  an  opinion  pronouncing  the  law  unconstitutional.  In 
1897  the  law  was  repealed  and  the  taxation  of  mining  compa- 
nies was  again  made  on  the  basis  of  the  general  property  tax.1 

II 

By  the  repeal  of  the  law  of  1881,  as  stated  above,  Minnesota 
was  forced  to  give  up  the  taxation  of  iron  properties  upon  their 
tonnage  output  and  compelled  to  return  to  the  general  property 
tax  as  the  only  means  the  State  had  of  getting  at  the  values  of 
iron  ore  properties.  The  Vermillion  range  was  opened  in  1884 
and  the  Mesabi  in  1892,  but  for  several  years  after  their  opening 
the  ranges  manifested  but  little  activity.  In  1898  the  ship- 
ments reached  14,024,673  tons,  and  the  State  Boards  of  Equaliza- 
tion in  their  annual  meetings  began  to  give  some  attention  to 
the  value  of  iron  ore  properties,  raising  the  amount  of  the 
assessment  in  1898  to  $6,000,000,  1900  to  $16,000,000,  1902  to 
$30,000,000,  1904  to  $42,000,000,  and  1906  to  $70,000,000. 
The  following  year  the  permanent  Tax  Commission  was  created, 
and  practically  the  first  problem  confronting  them,  brought  to 
public  attention  by  legislative  resolution  and  public  opinion 
in  the  State,  was  the  assessment  of  the  iron  ore  properties. 

The  problem  thus  created  was  the  valuation  of  more  than  a 
hundred  thousand  acres  of  land  scattered  through  three  counties 
and  varying  greatly  in  value.  The  presentation  of  the  methods 
used  to  arrive  at  a fair  valuation  of  these  properties  is  set  forth 
in  some  detail,  not  for  the  purpose  of  flaunting  the  doings  of 
any  commission  before  the  public,  but  rather  to  show  an  original 
and  somewhat  unique  method  of  arriving  at  a comparatively 
fair  and  just  value  of  great  properties  by  careful  investigation 
and  the  application  of  well-established  principles  of  economics 

1 Report  of  Auditor  of  State  of  Minnesota,  1901-1902,  p.  vii. 


418 


STATE  AND  LOCAL  TAXATION 


and  taxation,  and  at  the  same  time  to  bring  some  suggest 
tions  to  the  States  struggling  under  the  general  property  tax 
and  an  assessor  system  in  their  attempts  to  tax  mineral 
properties. 

A word  of  comment  regarding  the  extent  and  method  of 
operating  the  properties  will  bring  out  the  difficulties  of  assess- 
ment more  clearly.  Iron  ore  beds  in  the  State  of  Minnesota 
are  found  in  St.  Louis,  Itasca,  Lake,  Cook,  Otter  Tail,  Aitkin, 
Morrison  and  Crow  Wing  counties.  Three  distinct  ranges  have 
been  opened  — the  Mesabi,  the  Vermillion,  and  the  Cuyuna. 
The  Mesabi  range  extends  through  the  entire  width  of  St.  Louis 
County  into  Cook  and  Itasca  counties.  It  is  about  one  hundred 
miles  in  length  and  from  two  to  ten  miles  in  width.  The  area 
covered  by  it  is  about  four  hundred  square  miles.  The  Ver- 
million range  extends  from  Ely  to  Tower,  a distance  of  thirty 
miles.  The  Cuyuna  range,  only  indefinitely  ascertained,  ex- 
tends through  the  counties  of  Aitkin,  Crow  Wing  and  Morrison. 
The  width  of  this  range  is  unknown.  A fourth  body  of  ore  has 
been  discovered  in  Otter  Tail  County.  The  Vermillion  range 
was  opened  in  1884,  the  Mesabi  in  1892,  and  the  Cuyuna  in  1905. 
The  discoveries  in  Otter  Tail  County  have  been  made  during 
the  last  year.  Professor  Van  Hise,  in  speaking  of  the  Mesabi 
range  in  his  letter  of  transmittal  of  the  monograph  on  the 
Mesabi  to  the  Bureau  of  the  United  States  Geological  Survey, 
said : “ Discovered  only  about  ten  years  ago,  in  the  early 
nineties,  the  Mesabi  district  has  to-day  no  rival  in  its  produc- 
tion or  reserve  of  iron  ore.  The  geological  succession  in  the 
district,  the  unusual  size,  shape,  and  structure  of  the  ore  bodies, 
their  manner  of  development  and  the  peculiar  and  rapid 
methods  of  exploitation  of  the  ore,  all  present  features  of 
unusual  scientific  and  economic  interest.”  The  ore  body  on 
the  Vermillion  range  varies  from  10  to  20  feet  in  thickness  to 
100  to  125  feet,  and  there  are  some  instances  where  the  depth 
of  the  ore  is  as  great  as  500  feet.  It  is  not  to  be  understood, 
however,  that  these  ore  bodies  are  of  the  same  structure  through- 
out and  that  obstructions  of  rock  are  not  to  be  found  running 
through  them.  The  most  remarkable  example  of  ore  depth 
has  been  found  in  the  recent  discoveries  made  in  Otter  Tail 
County,  where  some  borings  have  indicated  a thickness  of  805 


THE  TAXATION  OF  MINERAL  PROPERTIES  419 


feet.  This  ore,  however,  is  mixed  with  sand,  and  has  a 40  per 
cent  iron  content. 

Three  general  methods  of  mining  are  employed  in  getting  the 
ore  out  of  the  ground: 

1st.  The  open  pit,  or  steam  shovel  method  of  mining.  The 
overburden  is  stripped  from  the  ore  with  steam  shovels,  and 
while  the  thickness  of  the  drift  has  in  the  past  only  been  re- 
moved up  to  the  thickness  of  the  ore,  there  have  been  instances 
where  even  a greater  depth  of  overburden  has  been  removed 
in  order  to  get  out  the  ore.  Tracks  are  built  out  on  the  ore 
deposits,  and  the  steam  shovels  make  a cut  through  the  ore. 
The  shovel  is  then  set  over  against  the  bank  made  by  the  recent 
cut,  and  another  slice  is  taken  off  and  loaded  on  to  cars  which 
are  run  into  the  cut  already  made.  As  the  work  proceeds,  the 
deposit  has  the  appearance  of  a series  of  terraces,  and  on  each 
of  these  a number  of  steam  shovels  may  be  worked  at  one  time. 
The  best  examples  of  such  mining  are  seen  in  the  Mountain 
Iron,  Mahoning  and  Biwabik  mines.  More  than  half  of  the 
ore  now  mined  on  the  range  was  taken  out  by  this  process. 

2d.  A second  method  is  known  as  milling.  The  drift  of 
overburden  is  removed,  as  in  the  case  of  the  open  pit  method. 
A shaft  is  sunk  along  the  edge  of  the  wall  rock  down  to  the 
level  of  the  ore  deposit,  and  cross  cuts  are  run  into  the  ore  from 
the  shaft.  Uprises  without  timbers  are  made,  and  the  ore 
received  at  the  surface  is  pushed  down  the  chutes  into  cars 
below.  It  is  then  trammed  to  the  shaft  and  hoisted  to  the 
surface.  About  7 per  cent  of  the  ore  is  mined  by  this  method. 

3d.  A third  method,  known  as  the  underground,  includes  the 
systems  of  caving,  slicing  and  room  mining.  Shafts  are  sunk 
into  the  ore  near  the  wall  rocks  and  extending  pretty  well  down 
to  the  bottom  of  the  deposit.  Cross  cuts  are  run  diagonally 
and  at  right  angles  into  the  body  of  the  ore.  Raises  are  sent 
up  to  the  surface  of  the  deposit  and  the  ore  drawn  in  from  the 
top  by  drift  slicing.  As  the  levels  are  removed  the  surface  is 
allowed  to  cave  in  until  the  ore  has  been  taken  out  to  the  base 
of  the  deposit.  In  the  instance  of  room  mining,  openings  of 
three  or  more  sets,  called  rooms,  from  twenty  to  forty  feet  wide, 
are  run  up  from  the  main  drift  to  the  top  of  the  deposit,  the 
sides  being  lagged.  Pillars  of  ore  are  left.  The  drift  above  is 


420 


STATE  AND  LOCAL  TAXATION 


allowed  to  cave  in,  filling  the  rooms.  The  pillars  are  then  taken 
out  by  slicing,  either  from  above  or  below.1 

The  open  pit  method  of  mining  is  far  the  cheapest,  the  under- 
ground the  most  expensive  and  the  milling  method  inter- 
mediate. The  open  pit  method  saves  all  the  ore  and  permits 
sorting  without  the  expenses  of  lighting,  timbering  and  large 
forces  of  men.  The  open  pit  method  is  limited,  however,  by 
the  grade  of  the  road  for  hauling,  by  the  extent  of  the  ore  body 
and  the  depth  of  the  overburden.  While  the  annual  produc- 
tion is  large,  the  capital  required  to  carry  on  the  stripping  is 
extensive. 

By  the  underground  method  there  is  little  outlay.  The  mine 
can  be  worked  the  year  round,  and  the  operator  gets  a return 
that  goes  toward  the  expenses  from  the  start  of  the  enterprise. 

The  milling  method  costs  less  than  the  underground,  but  it 
has  some  of  the  disadvantages  of  both  the  underground  and 
the  open  pit  methods.  The  tendency,  however,  is  markedly 
toward  the  increased  use  of  the  steam  shovel  in  the  mining  of 
ores  on  the  Mesabi. 

The  iron  ore  properties  are  held  in  fee  and  in  lease.  Owner- 
ship in  fee,  since  the  increased  value  of  mining  properties,  has 
in  a large  measure  ceased  to  be  the  principal  method  of  control- 
ling iron  properties.  The  investment  of  capital  in  fees  creates 
a permanent  interest  charge,  which  mining  companies  are  very 
anxious  to  avoid.  The  consequence  is,  that  leases  are  made  on 
a tonnage  basis,  by  which  the  lessee  agrees  to  pay  a certain 
sum  for  every  ton  of  ore  that  he  takes  out  of  the  ground.  The 
interests  of  the  fee  owner  usually  are  guarded  by  the  royalty 
on  a minimum  tonnage.  Subleases  are  the  rule  rather  than 
the  exception,  the  owner  of  the  original  lease  subletting  it  to 
some  operating  company  and  receiving  as  his  part  of  the  trans- 
action one,  two,  three,  or  even  five  cents  on  the  tonnage  put 
out  by  the  operators. 

The  method  of  making  the  assessment  of  properties  on  the 
ranges  was  the  outcome  of  experience.  The  attempt  of  assess- 
ors to  value  iron  ore  properties  was  accompanied  by  complaints 
of  inequalities  among  mine  owners  that  finally  created  a sort  of 
de  facto  board  of  equalization,  which  determined  the  value  of 

1 Leith,  “Mesabi  Iron-bearing  District,”  pp.  281-283 


THE  TAXATION  OF  MINERAL  PROPERTIES 


421 


the  different  operating  mines  according  to  output.  This  sys- 
tem, while  unsatisfactory  from  the  point  of  view  of  equalization 
of  values,  was  accepted  by  the  mining  men  as  more  satisfactory 
than  the  valuation  made  under  the  assessing  machinery  of  the 
local  governments.  Every  two  years  the  mining  representatives 
met  at  Duluth  and  distributed  the  real  property  assessment 
over  the  operating  mines  according  to  their  output.  The  small 
mines  were  the  losers,  and  the  larger  and  more  valuable  mines 
the  gainers  by  this  method  of  valuation.  There  was  no  criterion 
by  which  to  determine  the  values.  Prior  to  1897  the  tonnage 
tax,  after  that  date  the  valuations,  continually  shifted  with  the 
growth  of  the  properties,  and  the  distribution  to  mines  accord- 
ing to  output  prevented  the  establishment  of  any  principle  of 
local  assessment. 

Many  opinions  existed  among  mining  men,  State  officers, 
members  of  the  legislature,  and  the  public  generally,  as  to  the 
value  of  ore  in  the  ground.  The  values  were  stated  to  be  for 
ore  in  the  ground  from  five  cents  to  one  dollar  per  ton.  Even 
mining  men  themselves  placed  the  values  for  taxing  purposes  at 
amounts  varying  from  two  cents  to  thirty  cents  per  ton.  There 
was,  therefore,  little  in  the  form  of  definite  information  to  be  had 
regarding  the  basis  of  taxation  of  iron  ore  properties. 

The  first  step  in  the  work  of  valuation  was  to  secure  informa- 
tion. Consultation  with  State  officers,  the  collection  of  books, 
pamphlets,  maps  and  newspaper  clippings  upon  the  iron  proper- 
ties, the  securing  of  state  documents  and  the  reports  of  com- 
mittees, were  the  first  steps  toward  getting  information.  After 
careful  consideration  of  the  situation  and  the  problems  involved, 
the  commission  sent,  under  date  of  June  18,  1907,  a list  of  ques- 
tions to  the  various  companies  engaged  in  the  business  of  iron 
mining  in  the  State  of  Minnesota.  These  questions  were  so 
framed  as  to  cover  every  important  phase  of  the  mining  indus- 
try, and  the  hope  and  expectation  was  to  secure  a large  amount 
of  information  regarding  the  cost  of  operating,  output,  nature 
and  character  of  ores,  method  of  mining,  and  nature  of  owner- 
ship. The  request  for  information  was  as  follows: 

The  Tax  Commission  has  under  consideration  the  question  of 
valuing  for  taxation  purposes  the  iron  mines  and  ore-bearing 
properties  located  in  the  State.  To  this  end  and  in  order  that 


422 


STATE  AND  LOCAL  TAXATION 


there  may  be  no  injustice  or  discrimination,  all  owners  of  iron 
ore  and  mine  operators  are  requested  to  cooperate  with  the 
Tax  Commission  and  furnish  the  following  data,  as  of  May  1, 
1907: 

A.  Shipping  Mines. 

1.  List  and  description  of  properties  owned. 

2.  List,  description  and  terms  of  properties  leased  and  con- 

trolled. 

3.  Estimated  tonnage  in  mine  or  property. 

4.  Classification  of  ore  bodies. 

5.  Physical  characteristics  of  ores. 

6.  Mining  and  other  operating  cost. 

7.  Value  of  structures  and  equipment. 

8.  Yearly  shipment  records  since  opening  of  mine. 

9.  Annual  receipts  from  sale  of  ores. 

10.  Amount  of  ore  in  stock  pile. 

B.  Non-shipping  Mines. 

1.  List  and  description  of  properties  owned. 

2.  List,  description  and  terms  of  properties  leased  and  con- 

trolled. 

3.  Estimated  tonnage  in  mine  or  property. 

4.  Classification  of  ore  bodies. 

5.  Physical  characteristics  of  ores. 

6.  Mining  and  other  operating  cost. 

7.  Value  of  structures  and  equipment. 

C.  Mine  Prospects. 

1.  List  and  description  of  properties  owned. 

2.  List,  description  and  terms  of  properties  leased  and 

controlled. 

3.  Estimated  tonnage  in  property. 

4.  Classification  of  ore  bodies. 

The  Commission  will  appreciate  any  other  information  that 
will  assist  in  determining  the  value  of  the  property. 

It  is  the  purpose  of  the  Commission  to  have  such  prop- 
erty assessed  and  taxed  on  an  equal  basis  with  other  property 
throughout  the  State. 

After  a great  deal  of  correspondence,  the  Commission  received, 
late  in  August,  returns  from  practically  every  mining  company 
engaged  in  operation  and  from  individuals  owning  iron  proper- 
ties. This  data  was  supplemented  by  information  gathered  by 
the  Commission  during  its  visit  to  the  range  in  the  first  half  of 
August.  Through  this  visit  the  Commission  became  familiar 


THE  TAXATION  OF  MINERAL  PROPERTIES  423 

with  types  and  locations  of  mines,  character  of  ore  and  general 
conditions  existing  in  the  mining  business. 

Meantime  the  questions  of  classification,  analysis  and  value 
of  these  properties  were  being  considered  carefully.  The  dif- 
ferences existing  between  mines  in  their  geological  conditions, 
difficulty  of  mining,  character  of  ore  and  the  nature  of  mining 
rights  made  it  impossible  to  consider  all  mineral  properties  as 
belonging  to  the  same  group.  For  the  purpose  of  making  some 
distinction  between  the  different  mines  and  prospects,  five 
grades  of  operating  mines  were  created  and  four  grades  of 
prospects.  These  grades  were  determined  by  facts  secured 
through  the  data  furnished  by  mining  companies  and  the  ob- 
servations of  the  Commission.  The  first  grade  of  operating 
mines  included  those  that  were  operated  at  a low  cost  per  ton 
and  were  putting  out  good  grades  of  ore.  A distinction  was 
made  between  the  mines  in  the  first  grade  in  that  practically 
no  mines  approached  the  Mahoning  and  Hull-Rust  in  ease  of 
operation  and  character  of  ore.  Somewhat  more  expensively 
operated  mines,  though  distinctly  above  the  second  grade,  were 
placed  in  the  1 ( b ) class.  These  were  mines  like  the  Biwabik, 
Mountain  Iron,  Burt-Pool  and  Morris.  The  remaining  grades 
of  operating  mines  were  determined  by  the  cost  of  operation, 
returns  and  grades  of  ore.  The  prospect  group  was  divided 
into  four  classes,  depending  upon  the  stage  of  their  advance- 
ment toward  an  operating  mine;  thus,  the  first  class  of  pros- 
pects were  properties  on  the  verge  of  mining  operations.  Good 
examples  of  this  class  are  to  be  found  in  the  instances  of  the 
Gilbert,  Canestoo,  Frantz,  Iroquois  and  certain  parts  of  the 
Hull-Rust  and  Mahoning  properties.  The  second-class  pros- 
pects were  those  properties  that  had  not  been  advanced  so  far 
on  the  road  to  operating  mines,  but  upon  which  drilling  and 
testing  had  demonstrated  the  presence  of  ore  in  paying  quanti- 
ties. The  third  class  consisted  of  forties  in  the  neighborhood 
of  good  tonnage  properties.  In  the  fourth  class  the  ore  land 
acreage  was  placed,  since  it  had  a more  or  less  speculative 
value. 

These  distinctions  having  been  made,  a general  scheme  for 
assessing  the  value  of  iron  properties  was  drawn  up,  as  shown 
in  the  schedule  given  below: 


424 


STATE  AND  LOCAL  TAXATION 


1.  Factors  taken  into  consideration  in  the  valuation  of  mining 

properties. 

a.  Geological  conditions,  b.  Difficulty  of  mining. 

c.  Character  of  the  ore.  d.  Character  of  mining  rights. 

2.  Classification  of  mining  properties. 

a . Operating  mines. 

Class  1.  (a)  Properties  where  mining  is  comparatively  in- 
expensive and  the  ore  high  grade. 

(i b ) Properties  where  mining  is  comparatively  in- 
expensive and  the  ore  of  lower  grade. 

Class  2.  Properties  where  mining  is  somewhat  more  diffi- 
cult and  mining  cost  greater  than  in  the  case  of 
Class  1,  and  the  ore  of  mixed  grade. 

Class  3.  Underground  properties  where  the  expense  of 
mining  is  comparatively  low  for  that  kind  of 
mining  and  the  ore  of  high  grade. 

Class  4.  Underground  or  milling  pit  properties  of  dis- 
tinctly second  grade,  determined  by  a higher 
cost  of  mining  and  lower  grade  of  ore  than  in 
the  case  of  Class  3. 

Class  5.  Mines  of  inferior  character  where  expenses  of 
operation  are  high. 

b.  Prospects. 

Class  1.  Lands  that  have  been  drilled  and  test-pitted,  and 
where  stripping  of  the  overburden  has  been 
carried  on.  In  other  words,  where  the  property 
is  about  to  become  a mine. 

Class  2.  Lands  that  have  been  drilled  and  test-pitted,  and 
ore  found  in  some  abundance. 

Class  3.  Unexplored  lands  near  good  mining  properties. 

Class  4.  Lands  that  have  not  been  explored,  but  are  in  the 
well-known  ore  belt. 

3.  Rates  of  valuation  — per  ton  in  the  ground. 


Class  1 

Class  2 

Class  3 

Class  4 

Class  5 

Operating  Mines 

( a ) 33  c 

( b ) 30  c 

27  c 

23  c 

19  c 

14  c 

Prospects 

15  c 

10  c 

8 c 

$3  to  $50 
per  acre 

THE  TAXATION  OF  MINERAL  PROPERTIES  425 


In  the  determination  of  rates,  the  principal  problem  was  how 
to  get  a taxable  valuation  of  iron  properties  that  would  be  fair 
to  the  State  and  to  the  owners  of  the  properties.  The  rates  for 
the  varying  types  of  properties  were  arrived  at  in  the  main  by 
taking  into  consideration  several  factors: 

1st.  The  difference  between  the  cost  of  mining  and  the 
average  price  of  ore  during  the  last  three  years. 

2d.  By  the  present  worth  of  the  difference  for  a period  of 
twenty  years  on  a basis  of  a 4 per  cent  rate  of  interest. 

3d.  By  the  percentage  of  the  assessed  valuation  of  real 
property  in  the  State  to  the  full  value  of  such  property. 

The  fact  that  the  differences  in  mining  cost  vary  greatly  with 
the  different  properties,  due  to  management,  condition  of  the 
mine,  presence  of  water,  depth  of  ore,  character  of  equipment, 
grades  and  location  of  ores,  required  the  creating  of  more  than 
one  class  of  mining  properties.  The  classes  referred  to  in  the 
memorandum  above  were  created,  and  the  rates  established 
for  them  were  determined  as  far  as  possible  by  the  differences 
between  mines  in  cost  of  operation,  difficulty  of  mining  and 
grade  of  ore.  This  method  of  valuation  left  much  to  be  desired, 
but  no  better  one  was  suggested  at  the  hearing  of  mine  owners, 
and  it  was  the  best  that  the  commission  could  do  under  the 
ad  valorem  requirements  of  the  law. 

The  report  submitted  by  the  mining  companies  and  the 
owners  of  iron  properties  in  the  northern  part  of  the  State 
indicated  1,192,509,757  tons  of  ore.  This  ore  is  owned  and 
controlled  as  shown  in  the  table  given  below: 


All  Companies 

Oliver  Mining  Co.  Proportion 

Class 

No. 

Tonnage 

Rate 

Valuation 

No. 

Tonnage 

Valuation 

1 

2 

43,185,685 

33 

$14,251,276 

1 

18,185,685 

$6,001,276 

1(b) 

4 

66,442,923 

30 

19,932,876 

3 

61,442,923 

18,432,876 

2 

4 

25,176,067 

27 

6,797,538 

4 

22,676,067 

6,122,538 

3 

27 

138,845,839 

23 

32,134,497 

15 

83,013,290 

22,262,255 

4 

28 

91,494,762 

19 

17,653,975 

5 

34,492,748 

6,553,640 

5 

28 

105,821,134 

14 

14,561,749 

5 

60,666,159 

8,493,283 

P-1 

25 

271,863,523 

15 

40,779,516 

16 

212,522,123 

31,878,316 

P-2 

41 

204,635,249 

10 

20,483,518 

34 

182,765,260 

18,296,519 

P-3 

99 

244,504,575 

8 

19,490,345 

93 

237,004,57 5 

18,960,345 

P1 

4 

540,000 

118,712 

262 

1,192,509,757 

$186,204,002 

176 

912,768,830 

$137,562,048 

Unclassed  prospects. 


426 


STATE  AND  LOCAL  TAXATION 


SUMMARY  OF  TONNAGE  VALUATION 


No. 

Tonnage 

Valuation 

Average 

PER  TON 

All  Companies 

Shipping  mines 

93 

470,966,410 

$105,331,911 

$.224 

Prospects 

169 

721,543,347 

80,872,091 

.112 

Totals 

262 

1,192,509,757 

$186,204,002 

$.156 

Oliver  Iron  Mining  Co. 
proportion 
Shipping  mines 

33 

280,476,872 

$67,865,868 

$.242 

Prospects 

143 

632,291,958 

69,135,180 

.109 

Totals 

176 

912,768,830 

$137,001,048 

$.150 

When  the  task  was  completed,  the  figures  showed  a valuation 
of  $189,459,702,  distributed  among  the  different  classes  of 
properties  as  follows: 


No. 

Class 

Tonnage 

Valuation 

Acres 

Mines 

2 

1 

43,185,685 

$14,251,276 

200 

Mines 

4 

1 (b) 

66,442,923 

19,932,876 

800 

Mines 

4 

2 

25,176,067 

6,797,538 

1,280 

Mines 

27 

3 

138,845,839 

32,134,497 

3,329 

Mines 

28 

4 

91,469,762 

17,653,975 

2,940 

Mines 

28 

5 

105,821,134 

14,561,749 

1,995 

Tonnage  Prospects 

25 

1 

271,863,523 

40,779,516 

3,565 

Tonnage  Prospects 

41 

2 

204,635,249 

20,483,518 

3,950 

Tonnage  Prospects 

99 

3 

231,504,575 

19,490,345 

9,640 

Acreage  Prospects 

44 

998,000 

2,675 

Unclassed  Prospects 

4 

540,000 

118,712 

953 

Miscellaneous  iron  lands 

1,810 

2,257,700 

71,654 

Totals 

2,116 

1,192,509,757 

$189,459,702 

102,911 

To  the  amounts  shown  in  the  table  above  have  been  added 
the  values  of  properties  whose  reports  were  delayed,  amount- 
ing to  $634,736,  and  the  personal  property  assessments  of 
$4,334,490.  These  additions  make  a grand  total  for  the  assess- 
ment of  all  iron  properties  of  $194,428,928. 

The  value  of  iron  ore  properties  in  the  different  counties 
appears  in  the  table  below: 


St.  Louis  County $176,413,846 

Lake  County 87,500 

Itasca  County 12,927,144 

Crow  Wing  County 31,212 


$189,459,702 


THE  TAXATION  OF  MINERAL  PROPERTIES  427 


III 

The  result  of  the  work  thus  undertaken  gave  to  the  State  of 
Minnesota  what  she  had  never  had,  and  what  is  essential  to 
any  scheme  of  taxation  of  minerals,  full  knowledge  of  the  ton- 
nage of  ores,  their  location  and  value.  The  failure  of  the 
general  property  tax  so  far  as  the  assessment  of  minerals  is 
concerned  is  almost  wholly  due  to  lack  of  information.  In  the 
States  where  it  is  impossible  to  make  a careful  study  and  ex- 
amination of  mineral  lands  through  some  department  of  the 
State  government,  it  will  not  be  possible  to  secure  an  assess- 
ment of  mineral  properties  that  is  either  equitable  or  fair. 
There  is,  however,  no  reason  why  the  geological  survey  might 
not  furnish  even  to  State  boards  of  equalization  detailed  in- 
formation regarding  the  location  and  value  of  ore  lands,  and 
in  the  States  where  permanent  Tax  Commissions  exist  there  is 
no  reason  why  they  should  not  undertake  to  collect  the  infor- 
mation necessary  to  the  making  of  a proper  assessment  of 
mineral  lands. 

It  is,  however,  well  to  recognize  that  the  value  of  ores  varies 
greatly,  and  that  some  mines  are  worth  a great  deal  more  than 
others.  This  condition  is  in  itself  seemingly  opposed  to  the 
constitutional  requirements  of  the  States  where  the  general 
property  tax  is  in  vogue.  Thus  the  Minnesota  constitution 
did  require  that  all  property  should  be  assessed  uniformly  and 
equally  at  its  full  cash  value.  Whether  the  courts  would 
declare  the  method  followed  in  Minnesota  to  be  in  compliance 
with  the  provisions  of  the  constitution,  is  a debatable  question ; 
but  in  the  economic  sense  the  recognition  of  differences  is  the 
only  means  of  arriving  at  a fair  valuation.  If  the  classification 
has  been  carefully  made  so  as  to  include  all  of  the  essential 
differences  in  mines  due  to  location,  character  of  ore  and 
difficulty  of  mining,  then  equality  will  be  practically  established 
between  the  properties.  There  then  remain  the  rates  to  be 
applied  to  the  tonnage  developed  in  the  mines  of  each  class. 
This  feature  of  the  problem  is  the  most  difficult,  requiring 
examination  of  cost  statements,  transportation  charges  and 
general  expenses  of  mining  a ton  of  ore.  These  facts  are  ob- 
tainable, and  the  results  can  be  worked  out  as  they  were  in 


428 


STATE  AND  LOCAL  TAXATION 


the  Minnesota  experience  in  what  may  be  termed  a scientific 
manner. 

The  criticism  of  this  method  of  making  an  assessment  is 
negative  and  is  fully  stated  in  this  question : Is  the  information 
obtainable?  It  may  be  that  the  taxing  authorities  of  Minne- 
sota were  unusually  fortunate  in  two  respects:  first,  in  the  fact 
that  a large  corporation  owned  the  larger  part  of  the  property 
and  that  it  early  evidenced  a willingness  to  give  the  fullest 
information  possible  of  its  properties;  second,  in  the  develop- 
ment of  the  exploration  business  which  has  been  carried  to  a 
high  degree  of  efficiency  on  the  iron  ranges.  To  put  it  in  other 
words,  the  information  existed  in  the  form  of  blueprints,  esti- 
mates and  chemical  analyses,  and  the  companies  were  willing 
to  give  the  authorities  the  information.  It  may  be  that  these 
conditions  cannot  be  duplicated  elsewhere;  but  the  system  of 
making  assessments  developed  there  under  the  provisions  of  the 
general  property  tax  is  worth,  the  writer  believes,  a good  deal 
of  careful  study,  especially  in  view  of  the  inadequacy  of  many 
of  the  schemes  evolved  in  different  States  and  countries. 

Not  only  does  the  system  developed  in  Minnesota  make  a 
fair  assessment  as  between  properties  and  companies,  but  it 
tends  to  protect  the  reserves  of  ore  by  placing  them  at  a lower 
value  than  the  ores  in  an  operating  mine.  The  inclination  to 
hurry  ores  to  markets  is  therefore  checked  in  some  measure  by 
the  fact  that  a prospect  does  not  carry  as  heavy  a tax  charge 
as  a mine  that  is  sending  ore  to  the  smelters. 

The  failure  of  the  general  property  tax  to  develop  a satis- 
factory system  of  taxing  minerals  has  led  to  a number  of 
different  plans  presented  in  the  first  part  of  this  paper. 

The  annual  output  tax,  which  is  one  of  the  methods  used  by 
the  territory  of  Arizona,  the  Provinces  of  British  Columbia  and 
Ontario,  and  the  Mexican  government,  lays  the  tax  upon  the 
value  of  the  product.  The  objection  to  this  method  is  that  no 
distinction  is  made  as  to  costs  or  expense  of  producing  the  ore. 
The  same  objection  applies  where  the  assessment  of  the  prop- 
erty value  is  determined  by  the  output,  or  an  attempt  made  to 
capitalize  the  value  of  the  output  by  some  percentage  deter- 
mined in  practice  or  legalized  by  the  statutes.  The  province 
of  Ontario  has  met  these  objections  by  providing  for  the  deduc- 


THE  TAXATION  OF  MINERAL  PROPERTIES  429 


tion  of  expense  items  from  the  gross  receipts  of  the  operating 
company. 

In  the  instance  of  Mexico,  the  State  does  not  permit  the 
ownership  of  land,  so  that  the  question  of  assessment  is  one  of 
determining  the  value  of  the  output,  a comparatively  simple 
method  of  securing  revenue.  In  other  States,  the  general  prop- 
erty tax  had  been  modified  by  the  addition  of  a gross  earnings 
tax,  the  two  being  combined  together.  Such  is  the  case  in  the 
States  of  Colorado  and  South  Carolina.  Here,  again,  a certain 
return  in  the  form  of  gross  receipts  is  used  as  the  basis  of  the 
assessment,  and  to  this  are  added  the  assessed  value  of  the  im- 
provements, machinery  and  the  like.  While  avoiding  the  real 
question  of  the  value  of  the  properties,  the  method  followed  in 
these  States  does  not  distinguish  between  the  costs  of  mining, 
but  goes  on  the  supposition  that  they  are  comparatively  equal. 
This  criticism  has  been  recognized  in  the  Utah  and  Montana 
laws,  where  the  general  property  tax  has  been  supplemented 
by  a tax  on  the  assessment  of  net  earnings.  Two  fundamen- 
tally different  principles  are  coupled  together  in  these  laws : one 
on  the  value  of  the  surface  and  the  other  on  net  proceeds.  The 
bookkeeping  difficulties  of  the  latter  and  the  definition  of  what 
constitutes  legitimate  mining  costs  are  sufficient  in  themselves 
to  make  the  law  unsatisfactory  in  its  actual  workings. 

. The  authorities  of  Great  Britain  have  attempted  to  extend 
the  taxing  of  the  physical  properties  by  placing  a tax  upon 
royalties.  This  is  to  be  commended,  but  in  the  mining  districts 
of  the  United  States  the  contracts  between  fee  owners  and  lessee 
compel  the  latter  to  pay  all  taxes  falling  upon  the  properties 
or  incomes  from  the  properties.  An  additional  tax  upon 
royalties  would  under  present  conditions  not  fall  upon  fee 
holders,  but  upon  the  operating  companies. 

• A sixth  form  of  taxing  mining  properties  is  the  tonnage  tax, 
which  has  much  to  commend  it.  Where  it  has  been  proposed, 
as  in  Minnesota,  the  objection  has  been  made  that  the  placing 
of  a tonnage  tax  upon  output  left  the  local  governments  that 
are  compelled  to  rely  upon  the  mines  for  their  support  in  an 
uncertain  condition.  One  year  they  might  have  more  revenue 
than  they  needed,  and  in  another  year  a great  deal  less.  Last 
year  the  tonnage  shipped  from  Minnesota  mines  reached 


430 


STATE  AND  LOCAL  TAXATION 


26,000,000  tons;  this  year  the  amount  will  probably  be  not 
much  more  than  half  of  what  it  was  last  year.  This  statement 
illustrates  the  contention  of  the  opponents  of  the  tonnage  tax. 
It  is,  however,  possible  to  combine  the  tonnage  tax  with  a tax 
on  land  surface  at  a nominal  assessment  so  as  to  provide  for 
the  uncertainties  of  the  tax  on  tonnage.  The  contention,  how- 
ever, is  based  upon  a really  fundamental  principle  in  public 
finance,  that  of  a close  relation  between  budget  and  income, 
which  should  not  be  uncertain  but  reasonably  sure. 

The  Minnesota  system  of  taxing  mineral  properties  is  the 
general  property  tax  modified  so  far  as  it  applies  to  the  determi- 
nation of  values  by  the  method  of  ascertaining  costs  of  pro- 
duction as  now  seen  in  the  Ontario  law.  The  plan  developed 
in  Minnesota  does  not  exempt  reserves,  as  in  the  case  of  the 
Ontario  law,  but  attempts  to  aggregate  the  values  that  are 
arrived  at  by  the  product  of  a rate  and  the  known  tonnage. 
The  rate  is  derived  by  reducing  the  costs  called  for  in  the 
Ontario  law  to  a tonnage  basis,  and  deducting  the  same  from 
the  receipts  per  ton.  One  exception  should  be  noted, — the 
plan  included  in  the  calculations  of  the  rates  on  the  present 
worth  of  the  difference  between  receipts  and  costs  for  a period 
of  twenty  years  at  4 per  cent  interest.  In  both  instances  the 
idea  of  distinguishing  different  kinds  of  property  and  placing 
them  on  a just  basis  as  compared  with  their  values  or  earning 
power  is  clearly  a part  of  the  scheme  of  taxation.  The  Ontario 
law  is  simpler  and  more  effective  as  a piece  of  taxing  machinery; 
but  the  Minnesota  plan  of  assessing  mineral  properties  avoids 
the  uncertainties  and  inaccuracies  of  the  methods  usually  ap- 
plied in  the  case  of  the  general  property  tax  and  fills  a tem- 
porary but  fairly  satisfactory  place  until  something  better 
adapted  to  the  industry  and  simpler  for  the  State  to  work  can 
be  created. 


y 


■ 


